Since a C Corporation is the most common corporate structure for mid to large companies in the United States the immediate question that would come to the mind of the average person is "What is a C corporation?" Which, at first glance, can be very confusing.
The one feature of a C corporation that people are most aware of is the double taxation that is paid in the form of personal income tax and shareholder income tax.
In other words a shareholder, working for the company or receiving benefits from the company as an employee is taxed for the amount paid just as any other employee pays income tax.
Then when dividends are distributed and a profit is seen, the individual pays taxes on the amount received as a shareholder of the company.
It should be noted that is does not commonly occur in C Corporations, it can happen.
As the world has become smaller and foreign investors have entered the global community many C corporations have been formed because this is the only type of corporation that can have shareholders and stock holders who are not US citizens and are not residents of the United States.
This allows for a global investment strategy that can help a mid to large company through most economic crises.
A C Corporation is considered a separate legal entity.
This means that the corporation can buy and trade as an individual.
This also means that no shareholders, part-owners, or owners of the company are at the risk of losing money if there is a major loss within the company.
Owners can only lose the money they have put into the company.
If there is a lawsuit for example that exceeds the money within the company, the owners cannot then lose their personal assets.
Also, owners are not taxed on income of the corporation.
Remember taxes are based on salaries and dividends, the corporation is an entity in itself.
When answering the question of what is a C corporation one discovers that there are many advantages to a C corporation that are not available with other types of corporations.
A C corporation does not pay business taxes in the same way that other corporations do.
A C corporation is able to carry corporate losses forward to future tax years when money is lost.
And they are able to file for tax-free reorganization if needed.
In addition they can deduct the entire value of any fringe benefits that are offered to shareholders who serve as employees for the company.
C corporations can issue small business stock which qualifies them for tax benefits and it is much easier for these corporations to get equity or debt financing and venture capital money than other types of corporations.
A C corporation outlives its owners.
As an entity the corporation will carry on if the founder dies without disruption to the corporate structure.
The shares are easy to transfer and can be traded either through the stock market or publicly (over the counter).
If are planning on setting up a corporation for your business you may want to check other structures for suitability.